Once again, the future of PEMEX (Petróleos Mexicanos),
the country’s petroleum monopoly is being debated in Mexico.The issue is very important economically,
but it’s more than an economic question.The question of how to handle PEMEX is closely tied to national
sovereignty and Mexican identity.Any politician who wants to reform it had better take that into consideration.

The current politician
attempting to reform PEMEX is Mexican President Enrique Peña Nieto.What is he up against?

PEMEX is Mexico’s state oil monopoly. PEMEX
is protected from competition in Mexico, where it enjoys a legal monopoly on the exploration, processing and sale of petroleum.Its privileged status in national mythology affords it a certain immunity from criticism.

Nevertheless, PEMEX is in deep trouble.It’s heavily indebted, in fact it’s one of the world’s most indebted oil companies.It’s
not really managed as an oil company, but as a cash cow of the Mexican government, which makes it difficult to function as
a normal oil company.

PEMEX is
the source of a third of the Mexican government’s revenue.Any reform that substantially reduces
that share is going to be difficult to bring about.

Petroleum is Mexico’s biggest revenue earner, but production is dropping. If present trends continue, Mexico
will be an oil importer by 2020.

There’s
a lot more oil out there in Mexico's deep waters, but PEMEX lacks the funds and expertise to get it.

This wasn't the future envisioned by President
Lazaro Cardenas, who expelled the foreign oil companies and founded PEMEX in 1938, to give Mexico's oil to "the people."(March 18th, the date of the ExpropriaciónPetrolera – Petroleum Expropriation, is commemorated
annually.)

The Mexican
Constitution (Article 27) guarantees PEMEX's privileged position, a monopoly over the oil industry, from exploration to
the sale of gasoline at the pump.

PEMEX
service stations, with their familiar green signs, dispense gasoline nationwide to the captive Mexican consumer. Sometimes
the fuel is watered down, but hey, it belongs “to the nation”!

PEMEX has an acute lack of refineries. The United States has 139 operable oil refineries. Mexico, with less than
half of U.S. production, has only seven!

PEMEX
is prohibited from partnering with foreign companies within Mexico, but not abroad. So Mexican crude is shipped to Houston,
Texas, where it is refined (in partnership with Shell) and then reimported to Mexico.Is that bizarre or
what?

And since its vast
natural gas fields can't be properly exploited, Mexico is a net importer of natural gas from the United States.

Ironically, socialized petroleum makes Mexico more
dependent – not less – on the United States.

Mexican pundit Sergio Sarmiento is not a big fan of Mexico’s oil monopoly, which he describes thusly: "PEMEX,
supposedly the property of all Mexicans, … has only served to benefit the government, the political elite and the petroleum
[workers’] union."

Nevertheless,
reforming PEMEX is very difficult.

Article
27 of the Constitution proclaims that all Mexican natural resources are the property of the nation (which in the real world
means the property of the government!).

However,
the article makes a distinction between petroleum and mineral resources such as silver (of which Mexico is the world’s
#1 producer), gold, lead, zinc, iron, etc.

Foreign
investment is permitted in the mining industry, in fact foreign companies are actually able to buy and sell concessions to
mining operations.But not in petroleum.

If the political will exists, it is easy to amend the Mexican Constitution. It’s been amended
almost 500 times since 1917.It can be amended rather rapidly if all the party bosses are on the same sheet
of music.

The real barrier
is psychological, not constitutional.Mexican politicians have been raised on the rhetoric of oil as property
of the nation. Just mentioning privatization or even private investment elicits hysteria.

Nevertheless, it’s become obvious that something must be done.A full-fledged privatization is not in the works, and there’s practically no demand for it. PEMEX does subcontract
out some work to private (even foreign) companies but these companiesare not allowed to share profits.

But if Mexico wants its
government to maintain control over its oil industry while simultaneously allowing more foreign investment that increases
production, there ought to be a way to do that.Otherwise PEMEX is headed down the tubes.

Can the Peña Nieto administration accomplish
needed reform? This is an issue Mexico-watchers like to keep an eye on.